Archive for the ‘Eye on the Legislature: 2007’ Category

If they have a confessional at the Iowa Department of Revenue, this would be a good time to remodel it. Nobody will be using it for the next 13 weeks or so.
Governor Culver has signed the tax amnesty bill, SF 580. The bill forgives penalties and 1/2 of the interest during the amnesty period, which runs from September 4 thorugh October 31 of this year.
The Governor’s website touts this as a “one-time” amnesty. Yes, one time, just like the last one in 1986.
The Tax Policy Blog has a post on the policy implications of tax amnesties:

What we wrote in 1985 holds true today: if lawmakers decide to implement tax amnesty programs, they should be accompanied by fundamental tax reform that makes the tax code simpler and easier to comply with.

Governer Culver yesterday signed SF 566, the bill to increase the cap on Iowa’s rehabilityation credits. For some time the credit applications have exceeded the cap, which goes to $10 million (from 6.4 million) immediately and eventually to $20 million annually.
The bill also contains a lucrative giveaway for people who already have applied for credits but haven’t yet used them. The credits can be claimed in cash even if they exceed your Iowa liability; formerly the credits had to be “discounted” to claim a cash refund. The bill eliminates the discount. This means that people who already had committed to do work under the old rules get a windfall — one that the Des Moines Register calls “adjustments in how the credits are administered so they can be used more quickly.”The Moral? You pay taxes so the state can pay rehabbers a bonus.
Links:Text of HF 566Tax Update 2007 Tax Legislation PagePrior coverage of HF 566.

Governor Culver yesterday signed a bill increasing the Iowa earned income credit to 7% of the federal credit. SF 590 also makes the credit refundable, which means it will be available to low-income taxpayers even if they had no withholding.
Link: Press release on signing of SF 590.

Tax Analysts’ state tax guru David Brunori has noticed Iowa’s new credit for moviemakers ($link):

I’ve been deriding tax credits for the movie industry since their inception. People who understand tax policy will tell you those credits are unnecessary, unfair, inefficient, and so forth. They serve no purpose other than to let politicians hobnob with glamorous people. Maybe I’m old school, but I think all movies should be made in Hollywood.
Politicians in Iowa and Indiana disagree. Both states passed tax incentives for filmmakers. Interestingly, the tax incentives are identical in Iowa and Indiana, which makes me wonder if the industry has the same lobbyists working in all states. (emphasis added)

The Iowa legislature has gone home for the year. They leave behind a tax law in even worse shape than the one they found when they started the session in January. Having made some big spending commitments, we shouldn’t expect anything better when they return next year.
The principal tax legislation of this session was SF 128, the $1 per pack cigarette tax. This will be an economic development boon to cross-border convenience stores from East Dubuque, Illinois to Princeton, Missouri.
The tax bill that spur the most economic development for those of us who give tax advice by the hour is the tax amnesty bill, SF 580. The bill provides for a tax amnesty to run from September 4 through October 31. It will cover the following taxes:

individual and corporate income taxes; franchise tax; sales and use taxes; hotel and motel tax; local city, county, and school district sales and services taxes; automobile rental tax; equipment tax; petroleum diminution charge; inheritance and estate taxes; motor fuel and special fuel taxes; cigarette and tobacco taxes; and controlled substance tax.

If you think you may have issues with any of these taxes for prior years, it’s a good time to discreetly discuss getting your amnesty application in September 4. Taxes paid under the amnesty will be penalty-free, with 1/2 the interest. What? You paid your taxes on time all these years? The legislature appreciates all of us dedicated chumps law-abiding taxpayers.
The legislature also passed sweet tax credits for historic rehabilitation (SF 566) and for film makers (HF 892). Oh, and they rushed through a bunch of tax breaks for Google (HF 912).
Surprisingly, the legislature failed to pass a gas tax increase or a combined reporting requirement for corporations doing business in Iowa.
What’s missing? Any effort to make serious improvements to Iowa’s dysfunctional, complex, high-rate loophole-ridden tax law. A pathetic effort at property tax relief fizzled at the end of the session. No effort at all was made to lower our high income tax rates or eliminate loopholes. Instead, the legislature is even more committed to taxing its existing businesses and individuals to lure their competitors and subsidize the well-connected. This should solidify our ranking as the worst state for new business startups.

The Iowa House of Representatives cleared the tax amnesty bill, SF 580, this morning. While the Senate passed the bill almost unanimously, the bill had to overcome significant opposition in the House, passing 55-38.
This bill is expected to raise some millions to help finance the Governor’s spending surge as tax delinquents come in from the cold. Unfortunately, the bill fails even the basic “carrot and stick” test of most tax amnesties by failing to increase penalties and enforcement efforts for non-filers. It instead offers only carrots – 1/2 interest and no penalties for those who come in from the cold between September 4 and October 31 of this year.
And if you’re behind on your taxes now, the smart bet is probably to do nothing until September 4. If you have been living frugally to pay your taxes on time, or to catch up on your tax debts, the legislature has these words of comfort: sorry, chump!
Prior coverage:IOWA SENATE PASSES AMNESTY BILLWAYS AND MEANS VOTES TO SCHMUCK IOWA TAXPAYERS

The legislature passed the tax technical provisions bill (HF 923) without the provision that would have required folks downloading ringtones and iTunes to file personal sales tax returns on the downloads. Radio Iowa reports:

The Iowa House has voted against a Senate-backed plan that seeks to tax music, movies and ring tones that’re downloaded from the Internet. Critics of the idea said it was ridiculous to expect people to keep track of their Internet downloads, and send the state a check for sales tax on each transaction.
Representative Thomas Schueller, a Democrat from Maquoketa, said the debate had been an eye-opening experience. “I now understand what a ring tone is. Before this bill, I had no clue,” he said. “…I think I might actually be able to download one now, too.” The tax on Internet downloads have been stuck in a bill that dealt with all sorts of tax issues. The Senate now must decide whether to insist on what some have called the “iPod” tax.

The legislature did take action against a menace facing Iowa youths: candy machines stocked with smokes.

Another provision tucked into the bill, and which got House backing, would forbid businesses from stocking vending machines with both snacks and smokes. Representative Schueller nicknamed it the “Twinkie Clause.” “This is an obvious good change. It prohibits cigarettes and cigars from being displayed and/or dispensed from the same vending machines as snacks or candies,” he says. “No one wants junior going to the (vending) machine to buy a Twinkie, and come back with a Marlboro instead.”

Except junior, maybe. Actually, I have never seen a vending machine that carried Twinkies and cigarettes. Seeing either one of these products would ruin my appetite for the other, but maybe Twinkies and smokes are just meant to go together.
Meanwhile, the the legislature may see some last ditch action on new tax bills today. The Des Moines Register reports that Senate Majority Leader Gronstal is likely to push through his chamber a bill to replace the 1% local option sales tax with a statewide 1% levy, but that it may not make it further:

But beyond Senate support for the tax plan, its fate is uncertain, Gronstal said, citing reservations by Gov. Chet Culver and House Democratic leaders.
Brad Anderson, the governor’s spokesman, said Culver “has made it clear that the sales and use tax is not on his agenda for the session.”
House Majority Leader Kevin McCarthy, a Des Moines Democrat, said House action on the tax issue was unlikely at the tail end of the session. “I don’t see it having enough momentum at this stage,” he said.

The bill would also increase the “use tax” on vehicle sales – in effect, the sales tax on cars – by 1%.
The Sioux City Journal reports that plans to increase the gas tax and vehicle registration fees are dead for this year.
Follow tax legislation through the close of the session at our2007 Iowa Tax Legislation page.

Google is playing its you need us more than we need you card with the Iowa state legislature, and seems to have a winning Googley hand. Not only has Google once again achieved its Google only special “top secret” government privileges, it has apparently succeeded in wooing a legislative representative to serve as a prime Google spokesperson, Senator Bill Dotzler, a Democrat from Waterloo.

According to Dotzler, the trend now is away from having a computer with all the bells and whistles ? the software programs ? and toward “server farms” which give computer users access to a wide variety of options they’d be hard-pressed to store on a single computer.

Senator Dotzler has to be on the top of the list of every business that wants to be subsidized by Iowa taxpayers since he led the charge for the recently-passed filmmaker subsidy. But he is an expert on this sort of technology, clearly:

Dotzler has undoubtedly been well coached by Google:

“Really, the biggest problem with these server farms is the heat that’s generated in them. Just one server panel generates the equivalent of a seven-foot-high pile of toaster ovens, so can you imagine the amount of heat?”

The Governor’s much-ballyhoed effort to reform Iowa’s commercial property tax system has laid its first egg.
The House Ways and Means Committee yesterday voted to send HF 905 on to the full house. The bill provides a refundable income tax credit for commercial property taxes paid of up to $320. Refundable credits generate tax refunds even when no tax is owed to begin with. The bill would apply only to taxpayers with $300,000 or less in improved real property. The Des Moines Register covers this today.
Considering all of the attention paid to commercial property taxes at the start of the session, this is a very lame result. It shows the futility of attempting to deal with property taxes while ignoring the problems with Iowa’s income and sales taxes. The problems of state finance are all interrelated. You can’t deal with property taxes alone any more than you can deal with a weight problem by reforming milk shakes and ignoring Oreo consumption.
The House also approved the increase in the rehab credit ceiling (SF 566). The bill includes a retroactive giveaway of credits to people who have already committed to projects, but it excludes the provision to allow artists to take fair market value deductions for artwork donations — once again thwarting my artistic vision. Curses.
Follow all of the 2007 session tax legislaton at our2007 Iowa Tax Legislation page.

Tax reform? In 1965, they created tax withholding, repealed outmoded sections of the tax code and raised the gas tax. This one did nothing on a par with that. Iowa’s commercial property taxes remain among the highest in the country, our income-tax system remains complicated and uncompetitive.

Mr. Yepsen understates the case. The legislature didn’t just neglect Iowa’s tax system; they’re making it significantly worse.
Iowa’s tax system is a rat’s nest of high rates made tolerable to the well-connected by complex loopholes. The main tax policy achievement of this session is more loopholes and higher rates, including:
– A new tax credit/subsidy for filmmakers.
– Bigger and better rehab credits, including a giveaway for projects that were already underway anyway.
– A credit for giving away land for conservation.
– A huge increase in the cigarette tax, creating boom times for northern Missouri convenience stores.
The legislature also looks like it will approve a tax amnesty without any corresponding tightening of enforcement or penalties – a short-term fix that helps undermine tax compliance long-term by creating an expectation of future amnesties.
And the legislature is also working to pass combined corporate reporting to increase corporation tax collections. The worst thing that Iowa could do for economic growth is to make our current corporation income tax actually apply to people. Our 12% top rate is the highest in the nation, and the only reason it doesn’t stop economic activity altogether is that it’s usually easy to avoid.
Any progress – that is, moves to lower rates, broaden the base, and eliminate loopholes – seems unlikely. Resistance to the bad policy of the current session has been feeble, even from those who should know better. It looks like nothing but dark days ahead for Iowa tax policy. Unless, of course, they pass my loophole.